If you’ve got student loans, chances are at some point during the repayment period you’re going to have difficulty making your payments. Given today’s still-sluggish economy, you may have trouble making your payments shortly after you graduate from college or grad school. Don’t panic– you may have options to postpone your payments. These options are known as deferments and forbearance.
Federal Student Loans
Your federal student loans have built-in rights that can help you manage your payment obligations during difficult times. If you’re in financial trouble, It is crucial that you take advantage of one of these options; don’t ignore your federal loan obligations, you’ll regret it later.
(1) Deferment: A deferment allows you to postpone your payments for a period of time. During the deferment period, interest does not accrue for subsidized loans, and interest charged on unsubsidized loans doesn’t get added to the loan principal until the deferment period is over. This ensures that your loan principal will not balloon during the deferment period. This is an excellent option and is available for a variety of situations, including half-time or full-time school enrollment, unemployment, economic hardship, military service, and for certain types of law enforcement and volunteer work. Some of the deferments can be indefinite, while others are strictly time-limited.
(3) Forbearance: A forbearance, like deferment, also allows you to postpone your payments for a period of time. Unlike deferment, however, interest continues to accrue during the forbearance period. That means that your loan principal might rise more and more quickly the longer you remain in forbearance, since you are not making any payments to pay down the principal and the accumulating interest (although you should be able to make voluntary payments if you are able to). A forbearance can be requested for a variety of situations such as poor health, long-term economic hardship, natural disasters, and military service. Federal student loans generally have up to three years of forbearance available.
Private Student Loans
Generally, private student loans have fewer payment postponement options than federal student loans. Deferment options are generally for more limited and specific circumstances (i.e., returning to school half-time or full-time). Forbearance may also be an option, but it may be granted in more limited circumstances and for shorter periods of time than your federal loans. You may have to submit financial documentation to show you have an economic hardship, and your forbearance may be limited to a period of months, rather than years. Check out your options by speaking with your private lender. You may want to have your lawyer look over your original loan contract to see what rights you have and to start exploring what options are available to you by negotiating directly with the lender.
The bottom line is this: if you find yourself in difficult times, don’t panic, you may have options. The worst thing you can do is to simply stop paying. If you can avoid delinquency or default by postponing your payments, you should try– you’ll be grateful for it later.
Adam S. Minsky, Esq. is a Boston attorney who founded the first law office in Massachusetts (and one of the first in the country) devoted exclusively to student loan law. To learn more, please visit www.minsky-law.com. This post is for informational purposes only and is not intended as legal advice.